Friday, June 24, 2016

SAMUEL BOWLES IN ERROR ON ADAM SMITH'S TREATMENT OF HUMAN BARGAINING

Samuel Bowles, an economist, directs the Behavioral Sciences Program at the Santa Fe Institute, and recently published The Moral Economy: Why Good Incentives Are No Substitute for Good Citizens (Yale University Press). He posts on Christian Science MonitorHERE

‘The complex economics of self interest’

That incentives sometimes backfire, as Schelling discovered, is definitely a problem if you are an economist (I am one). Incentives, according to the dismal science, are the foundation of a well ordered society. Adam Smith, considered by many to be the father of economics, said it well: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

And this, he explained in the Wealth of Nations (1776), is not altogether a bad thing: the butcher, the baker, and other economic actors “intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”

….But Smith must have missed something important. Economic self interest may have put the beef, the beer, and the bread on the table, but it did not get Schelling and his colleagues to show up at the White House for Saturday meetings..

Where did the classical economists go wrong? Neither Smith nor the great 19th century economists who followed him made the mistake of thinking that people are in fact entirely selfish. Smith, in his other great book, The Theory of Moral Sentiments, held that “How selfish soever man may be supposed, there are evidently some principles in his nature that interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.” John Stuart Mill three quarters of a century after Smith termed the assumption of unmitigated self interest “an arbitrary definition of man.”

….This brings us back to complexity, a way of thinking in which the effects of things are rarely simply additive. Smith’s invisible hand argument had the whole, namely, the dinner on the table, being greater than the sum of its parts, namely, the self-interested motives of those providing the food who, Smith supposed, could not have cared less about the hungry family about to sit down.’

Comment

The problem with Samuel Bowle’s article on Adam Smith is that apparently he is not familar with Adam Smith’s writings on human bargaining behaviours (“not found in any other animal’). Also, as a modern educated economist, he has accepted the post-Samuelson fallacies of the “invisible hand”, and demonstrates that he has completely misunderstood Smith’s statement that “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest” (Wealth of Nations I.ii.2: pp 26-7). Upon this he builds his contruction of the ”complex economics of self-interest”. T’is a pity, as David Hume would have said.

In a recent essay (Adam Smith on Bargaining, 2016)) I wrote:

“In a little noticed couple of pages in Wealth of Nations, Adam Smith wrote a short account of human speech behaviour, which uniquely differentiates the human species from all other animals. I refer to Smith’s illuminating discussion of the nature and significance of self-interested human bargaining. Smith’s writings on bargaining have been largely ignored by economists, despite Smith’s assertion that bargaining behaviour is a unique characteristic of human behaviour. His outline of the effective bargaining speech-behaviours appeared in summary form in a modest couple of pages near the beginning of Wealth of Nations:

Man, said Smith: “in civilised society … stands at all time in need of the co-operation of great multitudes, while his whole life is scarce sufficient to gain the friendhship of a few persons. … But man has almost constant occasion for the help of his brethren, and it is vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and shew them that it is for their own advantage to do for him what he requires of them”.

Smith succinctly summarises the conditional bargaining proposition:

“Whoever offers another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer: and it is in this manner that we obtain from one another the far greater part of the good offices that we stand in need of”. The modern format of bargained propositions is clear: “IF you give me this that I want, THEN I shall give you that which you want”. In brief, bargaining proposals can be made in the form of an IF-THEN proposition (emphasis added).

He then follows with the oft quoted (but mostly misunderstood passage):

“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We adddress ourselves. not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages”.

Particularly note how Smith poses this statement. It is other-concerned, not self-concerned! It acknowledges the natural concern of the other party for their own interests by legitimising their “self-love” without mentioning one’s own self-interests or one’s own “necessities” and focusses on “their advantages”. Its aim is to address their self-interests, not to flaunt one’s own.

Others, since the 18th century, including today, (for example, Samuel Bowles!) assert that people are inherently selfish when acting alone, but humankind tends to act in communities of humans (we do not normally live alone). Humans live, work and play in social groups. The propensity in human nature to truck, barter, and exchange is common to all humans and has been so since the very early times of human evolution. This propensity to bargain, argued Smith, involves a minimum of two persons acting in concert (though not necessarily in tune). And, once you go beyond one individual to two, three of more, their transactions involve more than one ego and expression of self-love or self-interest. Human societies are dominated by pair-wise bargaining.

If self-love solely drove our behaviour, as with all other animals, the propensity to “truck, barter, and exhange” would be of limited value as a bargaining solution, and probably would never have been articulated in the clear form summarised by Smith. Individuals locking horns would never let go and would seldom conclude bargains. Asserting that humans are driven solely by self-love, self-interest or selfishess, ignores the process that intervenes between the clash of passions initiating their interactions (at least two, often incompatible, solutions are proposed initially for each negotiable problem) until one common solution emerges in the form of a joint outcome, should one be found. All people experience self-love or self-interest, but to achieve an outcome agreeable to their selfish self they must modify their own self-love to find an outcome agreeable to the other party too! For be clear, truck, barter, and exchange requires the acceptance by both parties of whatever is finally agreed as their joint solution. Negotiators square the circle by simultaneously sufficiently suppressing their selfish passions (of each wanting all of what they want) as they approach the possibility of agreement. Selfishness is not the driver of joint decisions, nor is it the determinant behaviour of people acting in concert for joint ends. Adam Smith's treatment of the bargaining process was succinct and closer to experience in the real world since human time began.”

I sugges that it is Samuel Bowles who has started from a misunderstaning of Adam Smith and the inter-play of self-interest, which had absolutely nothing to do with self-interst as a motive for “the self-interested motives of those providing the food who, Smith supposed, could not have cared less about the hungry family about to sit down.” Samuel has made a career for himself at the expense of libelling Adam Smith with ‘complexity’, interesting as I find the theory of it. That is not Samuel’s fault. He was taught the false version of Adam Smith as a student; time still for him to correct his tutors' errors.